Hermance Says Credit Crunch Isn’t Worst He’s Seen

Aug. 5 (Bloomberg) — Hudson City Bancorp Inc. Chief Executive Officer Ron Hermance, who built the company into the largest U.S. savings and loan amid a worldwide credit crunch, said the current crisis isn’t the worst he’s seen.

The subprime-induced slowdown has been amplified by 24-hour media coverage and the reach of the Internet, Hermance said in an interview. Delinquencies aren’t “anywhere near” the level that fueled the savings and loan collapse of the late 1980s and early 1990s, he said.

Back then, “Wall Street had real problems, and confidence was one of them,” Hermance said yesterday. “If you weren’t unemployed, you knew somebody that was.”

Hermance, 61, has more than quadrupled the stock price at Paramus, New Jersey-based Hudson City since taking over as CEO in 2002. Hudson City this year surpassed Washington Mutual Inc. as the biggest U.S. S&L by market value. It boosted profit as the world’s largest financial institutions reported more than $480 billion of writedowns and credit losses tied to subprime mortgages.

Hudson City rose 36 cents, or 2 percent, to $18.19 at 9:36 a.m. New York time in Nasdaq Stock Market trading. It rose 19 percent this year and has been the third-best performing stock tracked by the 88-company Standard & Poor’s 500 Financial Index.

Hermance said subprime lending “never appealed” to him. As other banks were buying out-of-market home-equity, car and construction loans, Hudson City built branches in areas ignored by rivals, he said.

Focus on Strength

“I kept thinking, indirect auto, indirect construction — not on my worst day would I have that idea,” Hermance said. “Focus on your strength. Don’t go out and try to broaden your base so much you get outside your competency level.”

Hudson City “might have a better handle of their own loan book than many of their competitors,” said Carlton Neel of Phoenix/Zweig Advisors LLC, which manages more than $1 billion, including Hudson City shares.

“We were looking for areas we could go that might be more immune to some of the things that we still saw as problematic in terms of the mortgage crisis and subprime,” Neel said. “Hudson City kind of piqued our interest.”

Hermance said in an interview with Bloomberg Television that Hudson City has “pristine credit quality,” and it would be too expensive for lenders to replicate their business. He said Hudson City spends 23 cents generating each $1 in revenue due to “an inborn efficiency.”

“To try and do the same thing we’re doing would cost people too much,” Hermance said. “It’s a model you have to fall in love with early rather than late.”

No Subprime Loans

Net income has climbed every year since Hudson City’s initial public offering in 1999. The 140-year-old lender, which has never made a subprime loan, posted second-quarter earnings last month that soared 52 percent, beating analyst estimates.

Hermance began his 34-year career in banking as a branch manager, working his way up to running originations at the now- defunct Home Federal Savings and Loan in East Rochester, New York. When he was writing loans, borrowers understood that they needed good credit, not just a down payment, Hermance said.

Hermance worked for lenders that have been swallowed by competitors KeyCorp and North Fork Bancorp, now Capital One Financial Corp. Born in Batavia, New York, he graduated in 1969 from St. John Fisher College. He lives in Ridgewood, New Jersey, with his wife and three children. Hermance says he’d like Hudson City to expand in New York and Connecticut and spread into Boston and Washington, D.C. For now, the company operates 123 branches in the New York City region, and is enjoying a period of growth as rival lenders must retrench.